Competition for Flow and Short-Termism in Activism

Competition for Flow and Short-Termism in Activism

Mike Burkart, Amil Dasgupta

Series number :

Serial Number: 

Date posted :

June 01 2014

Last revised :

September 20 2020
SSRN Share


  • blockholder monitoring • 
  • Activist Hedge Funds • 
  • competition for flow • 
  • Corporate governance • 
  • delegated portfolio management

We develop a dual-layered agency model to study blockholder monitoring by activist funds that compete for investor flow. Competition for flow affects the manner in which activist funds govern as blockholders.

In particular, funds inflate short- term performance by increasing payouts financed by higher (net) leverage, which subsequently discourages value-creating interventions in economic downturns due to debt overhang. Our theory suggests a new channel via which asset manager incentives may foster economic fragility and links together the observed procyclicality of activist investments with the documented effect of such funds on the leverage of their target companies.

Published in

Published in: 
Publication Title: 
Review of Corporate Finance Studies, forthcoming


Real name:
Fellow, Research Member
London School of Economics and Political Science